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Income protection insurance is a safety net designed to replace some or all of your income if you cannot work due to illness, injury or unemployment. An important consideration when choosing an Income Protection Quote or policy, as with any financial product, is that you understand how it works and what the key terms mean. Here are some useful tips on selecting an income protection policy that meets your individual needs and circumstances.
Policy Type
There are two main types of income protection insurance, short-term and long-term. Short-term policies typically last for 1-2 years and insure against an unexpected loss of income from injury or sickness. Long-term policies typically last for a period of 3 to 5 years and insure you against long term illnesses such as cancer or heart disease. With a long term policy, there’s a higher risk that you’ll eventually become permanently disabled rather than temporarily disabled, which means you may have to pay out more in premiums over time if your illness is progressive.
The Amount Insured
The waiting period is a significant factor in determining your monthly payments. It specifies how long you have to wait before starting receiving payments from your Income Protection Quote. A long waiting period can mean lower monthly payments, but it might also result in you being unable to afford that income should you fall ill or suffer a disability. A short waiting period can lead to higher payments, but it might allow you to maintain some of your standard of living during any time off work – which could be vital if you’re unable to work for several months or years. The choice of whether a long or short waiting period is right for you depend on your circumstances and financial situation.
Benefit Period
The waiting period is how long you must wait before benefits are paid out. For example, if your waiting period is 90 days, then you will not be able to receive income-protection payments until that 90 day period has passed, and this helps prevent people from taking out income protection insurance for minor injuries; they will have to wait before any money can be received.
Stepped Or Level Premiums
If you know for sure that your income will be level during some period, like if you’re taking parental leave, it may make sense to choose a stepped or level premium plan.
The Deductible
You should ask yourself how much risk of financial ruin you’re willing to tolerate before income protection kicks in. For example, would you rather have $1000 worth of coverage per month, even if it means having to pay $2500 out-of-pocket in case of injury? Or would you rather have $3000 worth of coverage per month but only pay $500 in case of injury? Consider your budget and needs—both immediate and future—to decide what amount is right for you.
Conclusion
When it comes to income protection insurance, each individual’s circumstances are different. So how do you choose what’s right for you? There are a few key considerations that you can weigh up before buying. The most important of these is why you’re taking out an income protection plan in the first place. If it’s simply to cover rent or mortgage payments, if illness or injury forces you to stop working for a while, then your needs will be very different from someone who takes out cover to provide their family with a source of income if they were to pass away. But once you understand your circumstances and goals, there are still plenty of things to think about when choosing between one policy over another.
